Global Europe Anticipation Bulletin - n° 110

Summary

Since November 8, 2016, India has created a monetary revolution of a magnitude never seen, both by the size of the population concerned and the depth of the transformation induced. By demonetising the biggest notes of 500 and 1000 Rs (rupees), the Indian government is trying to reintegrate into the official economy the state’s gigantic parallel (or black or more simply the archaic) economy…

Chapters:Warning signs.The detail of the demonetisation process.But what if it worked?

As we have already discussed and explained before, the crisis is now taking a more geopolitical form. Does this mean that the economic-financial crisis is over? No one will accuse us of having pretended that. If need be, we can confirm that the crisis is always there, always vivid, and it is in perfect shape after more than eight years of existence, thank you very much… (Read more in the GEAB 110)

Chapters:The Bugbear of the Chinese Debt.The Trap of the Western debts.Shake the green rag.

African Union: One road, One continent, One currency. The end of the CFA franc
Africa! The second largest continent in the world after Asia, both in size and population, and also one of the poorest is shaken by internal conflicts and wars. But above all, it’s a continent with one of the youngest age pyramids in the world … (Read more in the GEAB 110)

Chapters :One road: Unlocking Africa – “one belt, one road, one continent” project adjusted for Africa.One continent: the Africans organise their African community, Agenda 2063.The Africans take their place in the multipolar world.One currency: CFA-xit and de-dollarisation. Leave the money to Africans.Accompanying monetary reform by a necessary overhaul of taxation in Africa.

Each year in December, we evaluate our trend anticipations made in January. This month, we come across a final score of 25.5 out of 34, meaning a 75% success rate; two points more than last year. The year 2014 and the great turmoil caused by the Euro-Russian shock that drove us below the 70% success at that time, seems to be reconciled with. We can claim an average success rate of 73% – between 2012 … (read more in the GEAB 110)

Since November 8, 2016, India has created a monetary revolution of a magnitude never seen, both by the size of the population concerned and the depth of the transformation induced. By demonetising the biggest notes of 500 and 1000 Rs (rupees), the Indian government is trying to reintegrate into the official economy the state’s gigantic parallel (or black or more simply the archaic) economy. In a nation where 90% of the transactions are made in cash, a huge part of the financial activity escapes the knowledge of the central government, and therefore statistics, taxes and infrastructure financing.

Blue: volume; red: value. Source: Bloomberg.

Warning signs

There is nothing new in the fact that the central government tries to force its population to declare their wealth. For example, between 1951 and 1997, no less than ten amnesty projects had been launched, encouraging citizens to declare their unofficial income in exchange for a simple payment of some increased tax[1].

When Narendra Modi came to power on May 26, 2014, his programme spoke of modernisation of the country according to the neoliberal principles of privatisation and deregulation. But the tone, in that respect, has changed around the world. In India, as elsewhere, investment in infrastructure, Keynesianism and taxation have become much more important than monetary easing and indebtedness. Thus, in November 2015, Modi began to put in perspective a new form of modernisation, based on a very ambitious tax reform (JAM[2]).

On June 1, 2016, he launched his own amnesty scheme, or rather his income tax declaration scheme, asking Indians to take advantage of this period to declare their unofficial liquidity imposing a tax of 45% instead of the usual 30%[3], lasting for three months.

The detail of the demonetisation process

But the operation of demonetising the 500 and 1000 Rs banknotes on November 8 (in the middle of the US election) over a period of 50 days (until December 30) was not expected. This produced a real shock, especially knowing that these notes account for 86% of the liquid circulating in India; meaning an amount of Rs 14 lakh crore (or 14 trillion rupees[4]) being withdrawn from the cash in circulation.

From 8 to 24 November it was foreseen that any person exchanging or depositing amounts of more than 250,000 rupees (Rs 2.5 lakh) without being able to justify them would pay double the normal (30%) tax on these sums, as well as a fine of 200%. During this first period of the measure, masses of notes were thus purely and simply burnt.

But on November 29 the Lok Sabha (Chamber of Representatives) judged this rule as legally unfounded and voted an amnesty decree allowing people to declare amounts above 250,000 rupees on a payment of a tax of 50%. The remaining 50% are thus reintegrated into the white economy. But that is not all, half of this laundered sum (25% of the total) is blocked in a bank account in the form of lock-ins, or bonds, for four years … at the end of which the